Question

The following annual costs are associated with three new extruder machines being considered for use in a Styrofoam cup plant: IX X-TRUD (13 Data Useful Life, Years First Cost Salvage Value Annual Benefit M&O M&O Gradient $2,070,000 $119,000 $89,000 $56,000 $13,000 $2,930,000 $87,000 $534,000 $80,000 $11,500 SUPR-X 11 $2,790,000 $108,000 $610.000 $50,000 $15,000 The company's interest rate (MARR) is 4%. Which extruder should the Styrofoam company choose? Use Annual Cash Flow Analysis and provide the right reason. O Choosing SUPR-X is best because it has the highest Annual Benefit O Choosing SUPR-X will maximize the EUAB-EAUC; its value is $-108,570 higher than X and $284,590 higher than X-TRUD. Choosing SUPR-X will maximize the EUAB-EAUC; its value is $418,430 higher than X and $390,590 higher than X-TRUD. Choosing SUPR-X is best because it has the lowest M&O cost in yr1

Answer 1

EAUW of X = -2070000 * (A/P,4%,13) + 119000 * (A/F,4%,13) + 89000 - 56000 - 13000 * (A/G,4%,13)

= -2070000 * 0.100144 + 119000 *0.060144 + 89000 - 56000 - 13000 * 5.453288

= -238033.16

EAUW of X-TRUD = -2930000 * (A/P,4%,5) + 87000 * (A/F,4%,5) + 534000 - 80000 - 11500 * (A/G,4%,5)

= -2930000 *0.224627 + 87000 *0.184627 + 534000 - 80000 - 11500 *1.921611

= -210193.41

EAUW of SUPR-X = -2790000 * (A/P,4%,11) + 108000 * (A/F,4%,11) + 610000 - 50000 - 15000 * (A/G,4%,11)

= -2790000 *0.114149 + 108000 *0.074149 + 610000 - 50000 - 15000 * 4.609014

= 180397.06

Diff between AW of SUPR-X & X-TRUD = 180397.06 - (-210193.41) = 390590.47

Diff between AW of SUPR-X & X = 180397.06 - (-238033.16) = 418430.22

Third option is correct answer